Archive

The Oldfield-Pike Project has not declared for any of the Labour Leadership Candidates on account of being non-aligned politically. If it was Labour aligned it would back David Miliband but that is another story. However, after much deliberation the Oldfield-Pike Project would like to make small comments on the Leadership contest between now and the 24th September. The first in the series is on Ed Balls.

Over the past few weeks Ed Balls has shown himself to be knowledgeable on the economy, unsurprising considering a career at the FT and the Treasury before becoming an MP. His keynote speech at Bloomberg offered an interesting insight into how Ed Balls’ mind works. His analysis is spot on, if copied from various sources (the Project believes ‘plagiarised’ to be too strong a word). There is an increased risk of a double-dip recession, which could not have been said a month ago.

His comments about using £6bn from reduced borrowing to fund the construction of houses first raised our eyebrows followed quickly by a very small nod in agreement. The Oldfield-Pike Project has always implicitly argued for fiscal frugality, however Mr Balls is correct in his assessment that if this problem is not addressed soon it will merely create worse problems in the future. Britain has reached, or soon will reach, crisis point with a shortage of housing, more specifically housing that is applicable to social and private tenants. The Project believes that a relatively small investment now will pay dividends in the future as it will reduce the strain on an already saturated housing market.

Mr Balls’ analysis on reducing the structural deficit through growth is a possible course of action, but it is not a course of action that the Project would endorse or even recommend. It will, theoretically, create a more stable economy in the long run and growth begets stability (NOTE: it is not in the market’s interests to see Britain’s credit rating downgraded). But it will take a period of years to come to fruition, up to 20 years to eliminate by conservative estimates, and in the meanwhile another crisis could have struck with Britain in an ill prepared financial state to absorb the shocks.

Because of the above reason, the Oldfield-Pike Project does not believe that Mr Balls would make an effective leader of any party. We might recommend him for the Shadow Chancellorship if he takes a more acceptable stance on the economy. However we would like to wish Mr Balls the best of luck in any endeavour.

It was recently anounced by the Coalition Government to alter the new contracts for social housing tenants so that a Council House was no longer for life. This is, they claim, to increase the social mobility of tenants, to free up social housing for those that needed it most and make the housing applicable to the needs of the tenant. Gone are the days where lone tenants could occupy 3 bedroom houses because they were entitled to that particular house. The announcement is a start for much needed reform, however, it leaves a lot left undone and fails to address important issues such as the link to property ownership and economic instability.

The instability created by mortgages and property owning have been well documented by historians and economists a like – one of the more famous observers is Hyman Minsky or even Vince Cable. The selling of mortgages, especially to those who could not afford them, left, and is continuing to leave, the country unstable as the shortage in the supply of housing artificially inflates the price. This in turn restricts the economic activity of many earners in engaging with the sector even though the market is, on paper, healthy. The reality is that the market is unbalanced and even if the supply matched the demand there is far too much speculation and interest paid to the prices of housing. What does need to happen is a shift in attitude and culture from property owning to property renting. Note that the first Western countries out of the recession were France and Germany. Both countries have a thriving rental market and any economic instability derives from their banks investing in foreign mortgage and bond markets. One cannot stop the actions of the financial sector but one can seek to alter the societal perception towards rental markets.

The issue with social housing and what the Coalition wants to create is that it is lacking in one vital detail – supply of social housing. The idea behind the announcement is to create social and economic mobility in an economic section of society that is traditionally immobile. Social Housing was originally created as a safeguard for those that could not afford to rent or buy – similar to the fixed term suggestion – and the inheritance of social housing was absent unless circumstances demanded it ie poverty (@GaryMcLachlan 2010).

One way to increase the construction of Social Housing is through giving tax breaks to property developers so that Social Housing is developed within and alongside existing or planned projects. Thiw will increase social mobility as Social Housing is not segregated and therefore ghettoised by the exclusion of Social Tenants from ‘normal’ society. However the removal of the Regional Spatial Strategies by the Coalition Government makes it a lot harder for development to happen without the consent of NIMBYist residents.

Another way of increasing the construction is through the creation of Social Bonds (SocBond) or a Social Responsibility Fund (SRF). The two are quite different so bear with me. A SocBond is floated on the markets in order to gain revenue for the construction of social housing. The problem with this is that return rates do not exist as Social Housing cannot be rented for profit. However if the funding for Social Housing is incorporated into Municipal Bonds (an avenue for local authorities to increase revenue) then it is an option to be explored. SRF can only be adminstered locally, so the whip might have to be used by central government, and requires businesses in the area to contribute to the SRF. Returns do not exist but it also acts as good publicity and potentially free advertising space. Such as plaque saying “This House was built by a large Supermarket brand” or similar. However, SRF is not just used for Social Housing but for any community based project or aide.

The last alternative, that the Project has explored, is syphoning off revenue gained from the increase in taxes towards the construction of Social Housing. The Oldfield-Pike Project predicts, by using government estimates, that amounts of £3bn in the first year, dwindling to £0.5bn in the fourth year will only extend the government’s prediction for an elimination of the structural deficit by 2 years. The costs may be large initially but the savings are potentially huge!

Increased construction of Social Housing will increase the social and economic mobility of social tenants and those that rely on the state in order to survive (another post on welfare reform is in the pipeline). However, in order for there to be economic stability the culture needs to shift from property owning to property renting. Not only will it end the stigmatism of Social Housing, but it will also be cheaper for the majority (too affluent to be Social Tenants but too poor to buy) and create a rapid upwardly mobile society. The start to this shift must be made through regulation of the rental market and ending the monopoly of estate agents. This can be done through the state creation of a market by using houses built with the intention for use as Social Housing but instead use them in the private market. This will ensure that prices reflect income and the creation of a fully functioning market. Empty properties, industrial or residential, can be seized, with the owners paid off with the true value (not market value) of the property, and turned into housing intended for the rental market thus increasing the supply so that is meets the demand. This shift in the culture is predicted to take at least a decade to settle in, but no more than a generation. By increasing the access to rental properties the economy will be more productive as people can move from one area to another easier than if they bought thus increasing the economic fluidity and dynamism that is needed in a developed country.

In conclusion the supply of housing, social and rental, needs to be increased so that it meets demand and thus creates a market which will, in time, produce economic stability and increase economic productivity through the increased mobility of individuals who are not reliant upon a housing market.